Prices of consumables, groceries set to rise
The prices of groceries and other consumable items may go up in the UAE after fuel prices reached a record high in June.
However, the strengthening dirham, which is pegged to the US dollar, will offset some of the impact of the inflationary pressure as UAE imports a large number of goods from other countries.
On Tuesday, the UAE increased fuel prices by more than 13 per cent for June, reaching over Dh4 per litre for Super 98 and Special 95 due to an increase in global fuel prices.
Emirates NBD Research said in a recent report that UAE inflation will average at 4.3 per cent this year compared to its previous forecast of 2.3 per cent. “The upgrade takes into account the pass-through from the higher global oil and food prices as well as higher housing costs, particularly in Dubai,” it said.
Traders told KHALEEJ TIMES that transportation costs have increased after the rise in fuel prices.
Dr Dhananjay Datar, chairman and managing director of Al Adil Trading, said: “Retailers in the UAE try to absorb fuel price hikes because there is a strong competition in the market and they can’t afford to lose customers. So when freight rates go up after petrol price increase, retailers look at alternatives to reduce their costs rather than increasing the prices.
“In addition, retailers also reduce their margins instead of increasing prices, so as to stay competitive,” said Dr Datar.
A Dubai-based food trader said transportation and distribution companies are likely to bear the brunt of the fuel price hike. “In the food and beverage sector, prices of daily consumables such as fresh milk, bread, yoghurt and other such items could go up because these products’ transportation requires refrigerated trucks and also more fuel consumption,” he said, while requesting anonymity.
Vijay Valecha, chief investment officer at Century Financial, said the UAE government regulates prices, and therefore price hikes would be gradual.
“Since most of the food items consumed in the UAE is imported, their prices are bound to rise due to burgeoning transportation costs. Nonetheless, one good thing for UAE residents is that the dirham is pegged to the US dollar. And in the international forex market, the dollar has strengthened, which means the dirham value has gone up. Additionally, a stronger Dirham tends to decrease the price of imports, thereby reducing the inflationary pressures a bit,” said Valecha.
Based on international trends, Valecha noted that there is a likelihood that grocery prices in the UAE on aggregate can increase by 6-8 per cent year-on-year.
“In the near term, food retailers are likely to absorb a part of the pressure,” he added.
Mohammed Shaheen, CEO of Seven Capitals, said as budget-conscious consumers tighten their belts, retailers are offering discounts and firming up sourcing chains for an uninterrupted supply of essential commodities.
Since most of the food items consumed in the UAE are imported, their prices are bound to rise due to burgeoning transportation costs.
Vijay Valecha , chief investment officer at Century Financial